The Suicide of PDVSA

29.05.05 | More water than oil. This is what is coming out from the wells operated directly by the Bolivarian Petróleos de Venezuela (Pdvsa). Before the "fascist, terrorist and coup-targeted" strike, the ratio was half a barrel of water per one barrel of oil. Two years later, ratio is 4:1, i.e. four barrels of water. What does it mean? It plainly means that well useful life will go to hell early and fast.

Such statistics and other considerations that explain potential collapse of the domestic major business -and the revolution strength- are the result of analysis and steady monitoring made by a group of both internal and independent experts. The experts' low profile did not prevent them from warning in 2003 about the need for a good R&D management.

But nothing was done. After taking over the business following the nationwide strike of December 2002 and January 2003, and removing undesirable officials from the organization chart, the government focused on output recovery to the detriment of technical issues. A lot of oil should be produced. Period. Surely enough, Pdvsa website accounts for 3,250,000 b/d in the second quarter of 2003.

Eagerness to open the stream overstepped the work needed to look after the wells and engineer pressure maintenance or enhanced recovery projects, i.e.: to preserve and extend wells life and production capacity. As the "minor detail" was put aside, experts estimate that both useful life and "recovery factor" -barrels actually produced out of the reservoir probable reserves- dropped by 10.

In simple words, if potential activity in a well was 30 years, now it is only 3 years. If 30 barrels of oil were produced out of 100 probable barrels, only 3 barrels are produced at the present time. In the best-case scenario, the recovery factor in Venezuela averages 20-30 out of 100 probable barrels. And if most wells are affected like this, then falling production is overwhelming without the need of a "CIA plot." This is another success of the pretty revolution.

Just take out

The Emerging Markets Economic Research by the firm Goldman Sachs found early this month that "Pdvsa improper investment levels pose serious risks of gradual decline in oil production." The Stratfor report of May 17 is tougher. In 2003, "Venezuelan oil production plummeted due to Pdvsa poor management and insufficient investment. Pdvsa is not investing enough in maintenance and development of the new production capacity. As a result, Pdvsa is unable to offset depletion numbers in the wells, for an annual average of 20-25 percent, depending on the age of oil fields. Such natural depletion numbers are the result of losing internal pressure in the reservoir."

What do they mean by lack of maintenance?

Various combinations of water, oil and gas are present in hydrocarbon reservoirs. Therefore, oil comes out together with such components. Initial underground pressure provides for "primary recovery." As pressure decreases in the course of time, "secondary recovery" is applied to keep and increase pressure.

In the reservoir, underlying water pushes oil up. A major method of secondary recovery is to inject again the water linked with the extraction to exert additional pressure from bottom to top. A second technique is to inject a portion of the gas that is not processed for trade, or nitrogen, to exert pressure from top and keep oil like in a sandwich.

Both complex logistics and significant investment in water or gas processing plants are needed to implement these methods. Based on the country geo-morphology, such expenditure is a must, particularly for mature wells in western Venezuela. Over 70 percent of on-site original oil would remain underground if only primary procedures were used.

As appears from consulted sources, since 2003, such techniques have not been implemented. None of the facilities used to inject gas or water pressure is operational. Conditions in Lake Maracaibo eastern coast are a serious example. There, steam should be injected to get oil, but steam-processing plants are idle.

Wells grow older as pressure decreases. In the event of falling pressure, troubles arise early in advance. Damage may be irreversible in mature reservoirs, whereas newer reservoirs can be recovered only with a substantial investment.

For-your-eyes-only accounting

Before the nationwide strike, production amounted to 2,600,000 b/d from Pdvsa and 500,000 b/d from private operators, for a total of 3,100,000 b/d. Again, "the new Pdvsa" recorded 3,250,000 b/d in the second quarter of 2003, 1,200,000 b/d out which were drilled in western Venezuela.

Pdvsa recent magic numbers point to a production of 3,300,000 b/d. However, the foreign currency from oil revenues that Pdvsa should sell to the Venezuelan Central Bank does not match with these figures. Either Pdvsa is diverting anywhere else a nice piece of the profit, or the revolution is hiding the true oil output.

Experts consulted put things at a different level. Quite possibly, oil production amounts only to 1,150,000 b/d from Pdvsa in addition to 1,100,000 b/d from private companies, including 450,000 b/d that are not included in the quota of Organization of Petroleum Exporting Countries (OPEC).

In the aggregate, domestic oil production totals 1,800,000 b/d, including 500,000 b/d for internal consumption and 1,300,000 b/d for export. This is less than a half the "official" numbers provided by a Pdvsa that has not disclosed audited balances or submitted financial statements to the Security Exchange Commission since 2002.

What will Pdvsa "stockholders" do in the light of sparse, unascertainable official information? In the meantime, they will have to resort to experts and look for alternative guidance. Perhaps some day the revolution let KPMG independent auditors do their work based on true, reliable data -not propaganda.